Online sales restrictions under scrutiny of European Antitrust Authorities

by DLA Piper
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Background

Antitrust authorities in Europe are getting more and more rigid with regard to clauses that restrict or ban online sales, especially sales over internet platforms such as Amazon and ebay. In principle, the EU Commission in its Vertical Guidelines requires that every distributor must be allowed to use the internet to sell products. However, regarding third party internet platforms, the EU Commission accepts in margin number 54 Vertical Guidelines that a supplier may ban sales over those platforms by requiring that customers do not visit the distributor's website through a site carrying the name or logo of the third party platform. Competition authorities, specifically the German FCO, appear not to follow this approach in all cases and require "objective reasons" for banning online platforms.

Restrictions of online sales may be illegal

The prohibition on anti-competitive agreements (Art. 101 (1) Treaty of the European Union, "TFEU") also covers agreements that limit or ban online sales. Such anti-competitive agreements may be exempted from the prohibition and thus be lawfully implemented, if the Vertical Block Exemption Regulation ("VBER") is applicable, ie specifically no hard-core restrictions are involved.

Limiting or prohibiting online sales, may, in the view of competition authorities, constitute a hard-core restriction under the VBER and thus an anti-competitive agreement that is highly likely not exempted and thus illegal.

Despite margin number 54 Vertical Guidelines, this could in principle also be the case for a ban of sales over internet platforms, especially where there are no objective reasons for the ban.

Sennheiser and Pierre Fabre: two recent examples of antitrust investigations

In a recent case in Germany, headphone-maker Sennheiser had to change the terms of its online-distribution contracts that prevented the authorized dealers of Sennheiser's selective distribution system from selling products over the internet platform Amazon Marketplace, following an investigation of the German Federal Cartel Office (FCO). Since Sennheiser had authorized Amazon as one of its appointed dealers, the sale of other appointed dealers over Amazon's platforms could not be prohibited. The FCO was of the opinion that efficiency enhancing effects ("objective reasons") of the internet platform ban were not apparent, since Amazon's electronic distribution fulfilled the qualitative criteria of Sennheiser's selective distribution system. Furthermore, the FCO generally put into question, whether authorized dealers in a selective distribution system may be third parties in the meaning of margin number 54 Vertical Guidelines. According to statements by members of the FCO, this may form a general approach, even in less "clear" cases. The FCO also reviews platform bans imposed by Adidas and Reebock.

In France, cosmetics producer Pierre Fabre made a similar experience, when it de facto refused to authorize its brick and mortar selective distribution retailer network to sell the brand's cosmetics on the internet by requiring a pharmacist be present at any sale to a consumer. The European Court of Justice (ECJ) stressed in that case that the aim to maintain a luxurious brand image, was not a legitimate aim for restricting competition through a de facto ban of internet sales. The ECJ further emphasized that a de facto ban of the internet as a method of marketing could not be exempted by the VBER. On the basis of the ECJ judgement, the Paris Court of Appeals ruled that the total prohibition of online sales was unlawful and imposed on Pierre Fabre to modify its selective distribution agreements.

Conclusion

Based on the above, selective distribution appears to face challenges. Margin number 54 Vertical Guidelines is no longer a "safe harbour".

Documents

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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